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Keynes and Hayek
Introduction
In 1929, the stock market has crashed. John Maynard Keynes, a Cambridge University economist and a government advisor, and Friedrich von Hayek, an Australian professor of economics, introduced two contrasting view points on the economy. Since the end of World War II, their ideas have dominated in the economic science up to date. After World War II, a major question on the government’s appropriate role in the economy has erupted. Keynes established concepts that called for a large role of the government in the economy. He alleged that the government had an obligation to use an approach of boosting the economy during a depression. On the other hand, Hayek felt that the government did not have to intervene during an economic depression because the forces of demand and supply and laissez-faire would bring equilibrium. Keynes’ book called Treatise on Money created a basis on his policies. Hayek, together with Gunnar Myrdal, received the Nobel Prize for economics in 1974 for their pioneering effort on the theory of money and economic variations. Haynes has criticized Keynes’ work in many of his books standing by his principles; for example, in his famous book called Against Keynesian Inflation published in 1974 (Hoover 86). Keynes based his argument on the presence of a central body that could use monetary, fiscal, and other physical mechanisms carefully to ensure a balance in the economy. He argued the government should use the fiscal policy to manage the comprehensive demand and ensure employment opportunities. He believed that the government would borrow money and invest it in the public works. The deficit spending would create job opportunities hence increasing people’s purchasing power. This analysis formed the foundation to the government’s use of tax, deficits, and